936 F.

2d 1474

J.C. WYCKOFF & ASSOCIATES, INC., Plaintiff-Appellant

(89-1773)/Cross-Appellee,
Second National Bank of Saginaw, Intervening
Plaintiff-Appellee (89-1822),
Ann Arbor Leasing, Inc., Intervening Plaintiff,
v.
The STANDARD FIRE INSURANCE COMPANY, Defendant-Appellee/
Cross-Appellant (89-1823) and
Appellant (89-1822).
Nos. 89-1773, 89-1822 and 89-1823.

United States Court of Appeals,

Sixth Circuit.
Argued March 27, 1991.
Decided June 20, 1991.
Rehearing and Rehearing En Banc
Denied Aug. 2, 1991.

Roland J. Jersevic, Crane & Crane, and Timothy R. McLeod, and Susan J.
Tarrant, Polasky, Meisel, Rosenbaum & McLeod, Saginaw, Mich., for
J.C. Wyckoff & Associates, Inc.
Susan M. Cook (argued) and David L. Powers, Lambert, Leser, Dahm,
Giunta, Cook & Schmidt, Bay City, Mich., for Second Nat. Bank of
Saginaw, a Nat. Banking Ass'n.
Michael V. Marston, Rice, Rice, Gilbert & Marston, Detroit, Mich., for
Ann Arbor Leasing, Inc.
Charles Tuffley (argued), Daryl G.
Fryxell, Denenberg, Tuffley, Bocan, Jamieson, Black, Hopkins & Ewald,
and Judith A. Friday, Southfield, Mich., for the Standard Fire Ins. Co.
Before MARTIN and GUY, Circuit Judges; and EDWARDS, Senior
Circuit Judge.

RALPH B. GUY, Jr., Circuit Judge.

Plaintiff, J.C. Wyckoff & Associates, Inc. (Wyckoff), commenced this suit in
order to recover proceeds under a fire insurance policy issued by defendant,
The Standard Fire Insurance Company (Standard Fire).1 The policy named
intervening plaintiff, Second National Bank of Saginaw (the Bank), a lender of
money to Wyckoff, under a loss payable clause. Standard Fire refused to pay
proceeds to either the Bank or Wyckoff, claiming that Wyckoff committed
arson and fraud and false swearing, thus barring recovery under the policy by
either the Bank or Wyckoff. Standard Fire maintained that, because the Bank
was named under a loss payable endorsement rather than a standard mortgage
endorsement, the Bank's right to recover was contingent upon Wyckoff's right
to recover. After a trial on the issue of Standard Fire's liability to Wyckoff, the
jury rendered a verdict against Standard Fire on the arson defense and in favor
of Standard Fire on the fraud and false swearing defense. Upon cross motions
for summary judgment filed by the Bank and Standard Fire, the district court
held that the jury verdict did not bar recovery by the Bank for outstanding loans
made to Wyckoff and secured by real estate and personal property covered
under the policy. The Bank's claim regarding the amount of judgment was
subsequently resolved pursuant to a stipulation entered into between the Bank
and Standard Fire.2

Wyckoff raises numerous claims of error on appeal: (1) the trial court erred in
denying Wyckoff's motions for directed verdict and judgment notwithstanding
the verdict, as proof of reliance is required to sustain a claim of fraud and false
swearing in Michigan, and Standard Fire admits that there was no reliance; (2)
the issue of whether reliance is a necessary element of fraud and false swearing
should have been certified for decision to the Michigan Supreme Court; (3)
even assuming that proof of reliance is not required, the district court should
have granted plaintiff's motion for judgment notwithstanding the verdict
because there was not sufficient evidence of fraud and false swearing to submit
the issue to the jury; (4) because the jury's verdict was against the great weight
of the evidence, the district court erred in denying plaintiff's motion for a new
trial; (5) disputes over the value of lost property should have been referred to
arbitration as provided by the policy; (6) the district court erred by allowing
Standard Fire to amend at trial its allegations of fraud; and (7) the court erred
by allowing Standard Fire to deduct loan payments, made by Wyckoff to the
Bank subsequent to the fire, from insurance proceeds due the Bank under the
insurance policy.

Standard Fire cross appeals, arguing that (1) the trial court erroneously

excluded evidence regarding locked doors within the Wyckoff buildings,

thereby prejudicing Standard Fire's ability to effectively present an arson
defense; and (2) the trial court erred by ruling that Standard Fire was estopped
from relying upon a loss payable clause in the policy as a basis for denying the
Bank recovery.
For the reasons set forth below, we affirm the district court in all respects.

I.
5

On July 3, 1983, a fire occurred at the property of Wyckoff, a corporation

wholly owned by James Wyckoff and comprised of a number of separate
divisions, including a fund raising division, a fruit division, and a family
portrait division. In both 1977 and 1980, Wyckoff granted mortgages to the
Bank in order to secure loans for the construction of two buildings. The
mortgages required Wyckoff to insure the buildings against damage and loss by
fire, as directed by the Bank. At each loan closing, a letter was given to James
Wyckoff, president of Wyckoff, Inc., requiring Wyckoff to obtain an insurance
policy containing a "standard mortgage clause and provide that loss, if any,
shall be payable to" the Bank.3 In July 1981, Wyckoff granted the Bank a
security interest in Wyckoff's machinery and equipment. Although Wyckoff
agreed to keep the collateral insured, the exact manner in which the Bank's
interest in the collateral was to be indicated on the insurance policy was not
specified.

According to the testimony of Kenneth Tobias, the Bank's loan officer, the
mortgage officer in charge of the closing on a loan would review the
declaration page of the policy to look for the name of the Bank as mortgagee on
the face of the policy or check the attached endorsements to determine whether
the proper endorsement naming the Bank as mortgagee was contained therein.
Subsequent to the closing of a mortgage, the monitoring of insurance was done
primarily by the service department of the Bank, which would receive all
notices with regard to the insurance policies of mortgagors, including notices of
cancellation, non-renewal, terminations, reinstatements, or renewals. When a
policy was renewed, if a clerk received a certificate rather than a policy, and the
certificate indicated that the Bank was properly included as a mortgagee in the
policy, a copy of the policy normally would not be required.

From July 1, 1980, until June 30, 1982, Wyckoff was insured against loss or
damage to its buildings and their contents through a policy issued by
Frankenmuth Mutual Insurance Company (Frankenmuth policy). A certificate
of insurance, which contained separate boxes for "Mortgagee," "Loss Payee,"

and "Additional Insured," indicated that the Bank's interest was that of
"Mortgagee." An endorsement to the insurance policy also listed the Bank's
interest under a "Mortgage Clause," which indicates that the Bank, when
entitled to the protections of the clause, shall not be subject to any act of
negligence of the mortgagor or owner.
8

In early 1982, Wyckoff decided to change insurance agents and contacted

William Westwood of the Westwood Insurance Agency, a duly authorized
agent of Standard Fire. James Wyckoff did not specifically discuss his secured
creditors' insurance requirements with Westwood. However, both Westwood
and James Wyckoff agree that it was communicated to Westwood that the Bank
had real estate mortgages and a secured interest in personal property, and that
Westwood was aware of the Bank's mortgages and secured claim when he
prepared for Wyckoff a policy procured from Standard Fire. Both Westwood
and James Wyckoff testified that it was their mutual intention to protect the
Bank's interest as mortgagee and secured lender. Further, James Wyckoff
handed Westwood a copy of the Frankenmuth policy and instructed Westwood
to "duplicate or improve upon" the coverage provided by that policy. Although
Westwood only recalls receiving parts of the policy, he testified that he was
sure he had access to the entire policy.

Concerning his duty as an insurance agent to Wyckoff, Westwood testified that

he thought he should provide at least the coverage Wyckoff had before unless,
for some reason, Wyckoff should not have had that coverage. Westwood
testified that a standard mortgage clause endorsement for the Bank could have
been included without any additional premium and could have provided
protection for personal property as well. Westwood further testified that there
was nothing to preclude him from placing the Bank's name in two
endorsements, with a standard mortgage clause for real estate and a loss
payable clause for contents. Westwood stated that he could not see any reason
for or benefit to an insured to have a lender who is secured by real estate named
in a loss payable clause instead of a standard mortgage clause.

10

The 1982 Standard Fire policy obtained by Wyckoff from Westwood had a
policy period effective from July 1, 1982, to July 1, 1983. Subsequent to the
effective date of the new policy, Wyckoff's secretary requested Westwood to
provide the Bank with evidence of insurance. In accordance with this request,
Westwood sent a certificate of insurance to the Bank on July 27, 1982. The
certificate stated that the Bank was "indicated on the policy as mortgagee on
building and contents." However, Wyckoff had not yet been issued a policy at
the time the certificate was transmitted to the Bank, nor did the policy contain
any endorsements naming secured lenders when it was finally prepared in

Standard Fire's office in September 1982 and thereafter received by Westwood

who transmitted it to Wyckoff.
11

In November 1982, Westwood sent a memo to Standard Fire requesting that

endorsements be added to the policy, listing the Bank and various other lenders
under a loss payable clause. Westwood received these endorsements and mailed
copies only to Wyckoff; the Bank never received a copy of the insurance
policy. Although the policy listed the Bank as a loss payee and not under a
standard mortgage clause, Westwood testified that he did not know that the
endorsement for the Bank in the Standard Fire policy differed from the way the
Bank was endorsed in the Frankenmuth policy.

12

On May 20, 1983, Westwood met with James Wyckoff to discuss a renewal
policy. They reviewed coverage and discussed changes unrelated to the
insurable interests of other entities, and Wyckoff thereafter ordered a renewal
policy requesting two changes unrelated to the manner in which lien holders or
lessees were to be protected under the insurance coverage. Westwood testified
that no change was requested and none was discussed with regard to the Bank's
interest. The renewal policy was issued in June 1983, with the Bank once again
named under a loss payable endorsement. Two days after the effective date of
July 1, 1983, the insured property was destroyed.

13

At the time of the fire, the outstanding balance on the real estate mortgage and
commercial loans were $241,000 and $292,000, respectively. Two buildings
referred to as the "south building" and the "north building" were damaged by
fires of separate origin. These buildings were connected by a hallway or
corridor. The north building and its office equipment also suffered damage
from acts of vandalism.

14

In August 1983, Wyckoff submitted a proof of loss to Standard Fire, claiming

$420,000 for loss of buildings; $435,000 for loss of contents; $65,000 for loss
of cameras owned by one of its divisions, Julie's Family Portraits; and a claim
for an undetermined amount of lost earnings. Standard Fire denied the claim on
October 12, 1983, on the bases of arson and fraud and false swearing relative to
the origin of the fire.4 Wyckoff filed for Chapter 11 bankruptcy within a few
days and responded to Standard Fire's denial of the insurance claim two months
later by filing the underlying suit claiming breach of contract. Standard Fire
answered with the same defenses to liability set forth in the denial letter but
asserted new theories of fraud and false swearing:

15 plaintiff's claim under the said policy is barred as a result of fraud and false
The
swearing and the misrepresentation and concealment of material facts by its

president and sole stockholder, including but not limited to the cause and origin of
the fire, the financial condition of the plaintiff and the proposed sale of a division of
the said business.
16

Standard Fire later amended its defenses by adding new theories of fraud in the
final joint pretrial statement agreed to by the parties. In addition to the defense
of arson, Standard Fire's claim of fraud read as follows:

17

(2) J.C. WYCKOFF & ASSOCIATES, INC., has concealed and misrepresented
material facts and is guilty of fraud and false swearing relative to the cause and
origin of the fire, its claimed business interruption loss, the value of personal
property destroyed by the fire, its financial condition, its relationship with
SECOND NATIONAL BANK and the status of its negotiations for the sale of
Julie's Family Portraits.

18

Following the denial of Wyckoff's claim, the Bank asserted its own claim for
insurance proceeds under Wyckoff's insurance policy with Standard Fire.
Standard Fire denied the Bank's claim on the basis that, as a loss payee, the
Bank's right to recovery was subject to all defenses available to Standard Fire
against the named insured. The Bank then sought and was granted leave to
intervene as a plaintiff in the action filed by Wyckoff.

19

A trial on the breach of contract action commenced. Standard Fire introduced

evidence that Wyckoff made a claim in the sworn statement in proof of loss for
$38,563.80 for 180 boxes of brochures allegedly destroyed that were not
damaged, but which were removed from the fire scene to a pole barn behind his
house after the fire. James Wyckoff disputed this. However, his testimony was
contradicted by three of plaintiff's employees, and one employee witness
testified that the brochures were later brought back from the pole barn and used
as promotional materials. Testimony was also presented that Wyckoff claimed
outdated calendars and other obsolete materials as lost inventory. Evidence was
introduced that equipment was valued with no deduction for depreciation and in
contradiction of plaintiff's own financial statements. In addition, Standard Fire
introduced evidence indicating that Wyckoff misrepresented its financial
condition, the nature of its relationship and loan status with the Bank, and the
status of negotiations for the sale of Julie's Family Portraits.

20

At the close of trial, the district court instructed the jury on the elements of
fraud as follows:

21

In order to establish that the policy is void on the grounds of misrepresentation,

concealment, fraud or false swearing on the part of the plaintiff, the defendant
has the burden of proof by clear and convincing evidence that the plaintiff:
22

1. Made a statement,

23

2. Such statement was false,

24

3. Such statement was material,

25

4. That the plaintiff knew the representation was false at the time it was made,
or that it was made recklessly without any knowledge of its truth, and

26

5. The false representation was made with the intention of deceiving the
defendant.

27

The jury returned a special verdict, finding that Wyckoff's contents loss was
$300,000, that the camera loss was $35,000, that the plaintiff did not cause the
fire, and that Wyckoff had committed fraud and false swearing. The result of
the jury's verdict was to void the policy and to release Standard Fire from
liability to Wyckoff.5

28

At the end of trial, Wyckoff moved for judgment notwithstanding the verdict,
arguing that, in order to sustain a defense of fraud and false swearing in
Michigan, Standard Fire must rely on the alleged misrepresentations made by
the insured and suffer prejudice as a result of that reliance. As an alternative
ground for judgment notwithstanding the verdict, Wyckoff argued that,
assuming arguendo that the elements of fraud do not include reliance and
prejudice, there was not sufficient evidence of fraud and false swearing to
submit the issue to the jury.6 Plaintiff further argued that the court should grant
a new trial on the basis that the subsequent verdict was against the clear weight
of the evidence. The district court denied plaintiff's motions for a judgment
notwithstanding the verdict and for a new trial.

29

Standard Fire moved for summary judgment on the Bank's claim, and the Bank
filed a cross-motion for summary judgment, contending that Standard Fire was
estopped from denying liability to the Bank.7 After a hearing, the district court
granted the Bank's motion for summary judgment and denied the motion for
summary judgment filed by Standard Fire. Upon determining that the jury
verdict did not bar recovery by the Bank, the court held that judgment should
be entered in favor of the Bank for an amount not to exceed the lesser of the

following: (1) the outstanding amount of the Bank's loan as secured by the real
estate loan, notwithstanding that the Bank may have had additional security; (2)
the value of the destroyed property; and (3) the amount of the insurance policy.
The Bank then brought a motion for summary judgment to determine the
amount due, alleging $565,191.02 as the amount due and owing by Wyckoff as
of the date of the motion. This amount was calculated by beginning with the
amount due at the time of the fire, deducting $246,830.85 in payments made by
Wyckoff since the date of the fire, and adding accrued interest on the unpaid
amounts. The Bank's claim was resolved pursuant to stipulation between the
Bank and Standard Fire, and a judgment awarding the Bank $560,000 plus
post-judgment interest was entered.
II.
30

In federal court diversity cases, this circuit adheres to the minority rule that
state law governs the standard for granting motions for directed verdicts and
judgments notwithstanding the verdict. Fitzgerald v. Great Central Ins. Co.,
842 F.2d 157, 159 (6th Cir.1988); Lewis Refrigeration Co. v. Sawyer Fruit,
Vegetable & Cold Storage Co., 709 F.2d 427, 430 n. 3 (6th Cir.1983).
Although appellate courts should exercise considerable restraint in overruling
jury determinations, they should not ignore their responsibility to insure that the
evidence presented at trial permits juries to draw the reasonable inferences
supporting such determinations. Kupkowski v. Avis Ford, Inc., 395 Mich. 155,
168, 235 N.W.2d 324 (1975). In Michigan,

31 judgment notwithstanding the verdict is appropriate only if the evidence is

[a]
insufficient as a matter of law to support a judgment for the nonmoving party. When
deciding a motion for judgment notwithstanding the verdict, the court must view the
evidence in a light most favorable to the nonmoving party, giving the nonmoving
party the benefit of every reasonable inference that could be drawn from the
evidence. If the evidence is such that reasonable persons could differ, the question is
one for the jury and judgment notwithstanding the verdict is improper.8
32

Slanga v. Detroit, 152 Mich.App. 220, 224, 393 N.W.2d 487 (1986) (citations
omitted), remanded for reconsideration on other grounds, 429 Mich. 893, 417
N.W.2d 479 (1988). See also Sabraw v. Michigan Millers Mut. Ins. Co., 87
Mich.App. 568, 571, 274 N.W.2d 838 (1978), rev'd on other grounds sub nom.
Smith v. Allendale Mut. Ins. Co., 410 Mich. 685, 303 N.W.2d 702 (1981).

33

When ruling on a motion for judgment notwithstanding the verdict, if the court
concludes that evidence on an element necessary to establishing a cause of
action or affirmative defense is lacking, then as a matter of law the claim or

defense is not an appropriate one for the jury's consideration. See Smith, 410
Mich. at 715, 768, 303 N.W.2d 702. Thus, if plaintiff is correct that reliance is
an essential element for establishing the section 500.2832 defense of fraud and
false swearing, then defendant's admission that there was no reliance would
mean that the evidence was insufficient as a matter of law to support the jury's
judgment.9
34

A court of appeals must review de novo a district court's determination of state

law, and no form of appellate deference is acceptable when de novo review is
compelled. Salve Regina College v. Russell, --- U.S. ----, 111 S.Ct. 1217, 113
L.Ed.2d 190 (1991). Until Russell, we consistently held that "the judgment of a
local district judge sitting in a diversity case, as to the application of state law,
is entitled to considerable deference." Diggs v. Pepsi-Cola Metro. Bottling Co.,
861 F.2d 914, 927 (6th Cir.1988). However, the Supreme Court concluded in
Russell that, although a majority of the courts of appeals had embraced a
similar rule of deference, appellate deference on legal issues was not warranted
by the exercise of diversity jurisdiction and was actually inconsistent with the
principles of cooperative judicial federalism underlying Erie Railroad v.
Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938), and its progeny.
Applying the de novo standard of review mandated by Russell, we conclude
that the district court, after a considered analysis of Michigan law, correctly
resolved the issue of state law presented in the instant case.10

35

When faced with precisely the same question presented here--whether it must
be shown that the claimed false statements or misrepresentations were relied
upon by the insurer to its prejudice or damage before recovery may be barred
under the standard statutory policy of Mich.Comp.Laws Sec. 500.2832--a panel
of the Michigan Court of Appeals answered in the negative. Ijames v. Republic
Ins. Co., 33 Mich.App. 541, 542, 190 N.W.2d 366 (1971). The Ijames court
and the district court in this case relied upon the Michigan Supreme Court's
holding in Monaghan v. Agricultural Fire Ins. Co., 53 Mich. 238, 18 N.W. 797
(1884). Ijames, 33 Mich.App. at 546, 190 N.W.2d 366. Monaghan interpreted a
forfeiture provision in a fire insurance contract and held that "[t]he attempt to
defraud the company by any one of the insured, by the making of false
affidavits in relation to loss, is a complete bar to a recovery upon the policy."
Monaghan, 53 Mich. at 253-54, 18 N.W. 797 (emphasis added).11 The district
court interpreted the phrase "attempt to defraud" as requiring neither a showing
of reliance nor a showing of prejudice on the part of the insurer when the
insured intentionally and willfully makes a false statement relative to loss.

36

Plaintiff points out that in another early case the state supreme court stated that
"[t]o sustain a defense of fraud because of misrepresentation or false statements

in an insurance contract, it must be shown that the insurer was prejudiced or

damaged by such conduct." Bernadich v. Bernadich, 287 Mich. 137, 143, 283
N.W. 5 (1938).12 However, a panel of the Michigan Court of Appeals later cited
Bernadich for the proposition that justifiable reliance, although necessary to
prove the defense of fraud in the procurement of insurance coverage, is
nevertheless not an element of a policy defense based upon an alleged
fraudulent proof of loss. Rayis v. Shelby Mut. Ins. Co., 80 Mich.App. 387, 39293, 264 N.W.2d 5 (1978);13 see also Kelly's Auto Parts, No. 1, Inc. v.
Boughton, 809 F.2d 1247, 1256 (6th Cir.1987) (Michigan cases concerning
insurance fraud distinguish between procurement of insurance and proof of
loss). Although a fair reading of Bernadich raises the question whether it truly
makes the distinction purported by Rayis,14 such a reading is not without merit,
as the Bernadich reference to reliance and prejudice concerns "false statements
in an insurance contract." Bernadich, 287 Mich. at 143, 283 N.W. 5 (emphasis
added).
37

Although it is possible to read Bernadich differently than the Rayis panel, "we
are bound by what we believe Michigan courts would do, rather than what we
may think personally would be the result most harmonious with the state
statute." Diggs, 861 F.2d at 927. An intermediate appellate court's judgment
that announces a rule of law is "a datum for ascertaining state law which is not
to be disregarded by a federal court unless it is convinced by other persuasive
data that the highest court of the state would decide otherwise." Woodruff v.
Tomlin, 616 F.2d 924, 929 (6th Cir.) (quoting West v. American Tel. & Tel.
Co., 311 U.S. 223, 237, 61 S.Ct. 179, 183, 85 L.Ed. 139 (1940)), cert. denied,
449 U.S. 888, 101 S.Ct. 246, 66 L.Ed.2d 114 (1980). In addition to the explicit
pronouncements of Ijames and Rayis, other panels of the Michigan Court of
Appeals have implicitly reached the same result by upholding jury instructions
on fraud or false swearing that lack the elements of reliance and prejudice.15
Therefore, we remain unconvinced that we should disregard the holdings of
Ijames and Rayis.16

38

Plaintiff argues in the alternative that, even assuming proof of reliance is not
required to establish the affirmative defense of fraud and false swearing, the
evidence was insufficient to submit this defense to the jury.17 Plaintiff argues
that the difference between the jury verdict, which pegged the contents loss and
camera loss at $300,000 and $35,000 respectively, and Wyckoff's proof of loss
claiming $435,000 for contents and $65,000 for the camera, is not sufficient to
support a verdict for fraud and false swearing. To accept plaintiff's alternative
argument, this court would have to conclude that there was no way a reasonable
jury, looking at the defendant's evidence, could have found in defendant's
favor.

39

There are two reasons why this court cannot adopt the plaintiff's interpretation
of the evidence. First, plaintiff perceives the evidence as establishing only that
Wyckoff made an honest mistake or innocent overvaluation. Although the
cases relied on by plaintiff say that fraud is not established by the mere fact that
plaintiff's loss is determined to be less than his stated claim, they are simply
saying that the overvaluation, to void a policy under a forfeiture provision
triggered by fraud, must be made with the intent to deceive the insurer. See
Foreman v. Badger Mut. Ins. Co., 169 Mich.App. 772, 776, 426 N.W.2d 808
(1988); West v. Farm Bureau Mut. Ins. Co., 402 Mich. 67, 69, 259 N.W.2d 556
(1977); Campbell v. Great Lakes Ins. Co., 228 Mich. 636, 638, 200 N.W. 457
(1924). Although the case should not be submitted to the jury "[i]f the
difference between the proof of loss and actual loss is negligible," if "the
difference [is] extreme, fraud may be inferred by law and the judge may direct
a verdict for the insurer." Rayis, 80 Mich.App. at 392 n. 3, 264 N.W.2d 5
(plaintiff's claim for $60,000 and appraiser's value at $11,800 created a jury
question). We find the disparity in this case more than negligible and sufficient
to place the question of intent before the jury. Where it is within the
competence of the jury to determine whether Wyckoff's misrepresentations
were made in good faith or with the intent to deceive, and the jury was properly
instructed on this element,18 we will not disturb its verdict on the basis of the
argument that the overvaluation was small.

40

The second problem with Wyckoff's argument is that evidence of fraud and
false swearing unrelated to overvaluation was submitted to the jury, and
Wyckoff makes no attempt to challenge the sufficiency of this evidence.
Defendant introduced evidence sufficient to support a finding of fraud on
several theories, including that Wyckoff claimed property not damaged or
destroyed, that the business interruption claim was false, and that Wyckoff
misrepresented its financial condition, its relationship with the Bank, and its
status of negotiations for the sale of Julie's Family Portraits. We find this
evidence, viewed either in conjunction with Wyckoff's overvaluation or
independently of the value placed on property actually lost in the fire, sufficient
to support the jury's verdict.

III.
41

In addition to challenging the sufficiency of the evidence, plaintiff also appeals

the denial of its motion for a new trial made on the basis that the verdict was
against the great weight of the evidence. Plaintiff essentially restates the
challenge to the sufficiency of the evidence that it made in appealing the denial
of its motion for judgment notwithstanding the verdict. However, because the
task of the district court in ruling upon motions for a new trial challenging the

weight of the evidence, as well as the standard for appellate review of such
rulings, differs from those utilized for motions challenging the sufficiency of
the evidence, we set forth the law guiding our review of this matter.
42

One who challenges the weight of the evidence argues that the jury's verdict,
although supported by some evidence, is still clearly against the weight of the
evidence. Unlike motions for directed verdicts and judgments notwithstanding
the verdict, in ruling upon a motion for a new trial based on the ground that the
verdict is against the weight of the evidence, the trial court must compare the
opposing proofs, weigh the evidence, and set aside the verdict if it is of the
opinion that the verdict is against the clear weight of the evidence. TCP Indus.,
Inc. v. Uniroyal, Inc., 661 F.2d 542, 546 (6th Cir.1981). It should deny the
motion if the verdict is one which could reasonably have been reached, and the
verdict should not be considered unreasonable simply because different
inferences and conclusions could have been drawn or because other results are
more reasonable. Id.

43

Given the discretion of the trial court engaged in this task, as compared to the
function of the trial court when ruling on motions for judgment notwithstanding
the verdict,19 appellate courts traditionally have been reluctant to overturn a
trial court's order granting or denying a motion for a new trial that is based on
the ground that the verdict was against the weight of the evidence. Duncan v.
Duncan, 377 F.2d 49, 53 (6th Cir.), cert. denied, 389 U.S. 913, 88 S.Ct. 239, 19
L.Ed.2d 260 (1967). The deferential standard of review accorded to these
orders is articulated in Logan v. Dayton Hudson Corp., 865 F.2d 789 (6th
Cir.1989), where we stated:

44
Generally,
the grant or denial of a new trial is purely within the discretion of the trial
court and will not be reversed except upon a showing [of] abuse of discretion. Abuse
of discretion is defined as a definite and firm conviction that the trial court
committed a clear error of judgment.
Id. at 790 (citations omitted).20
45

The record does not indicate that the district court engaged in the analysis set
forth in TCP, as the court's opinion and order denying plaintiff's motions for a
JNOV and a new trial only addresses the sufficiency of the evidence and the
elements of fraud.21 However, because the arguments raised in challenging the
sufficiency of the evidence, both before the trial court and on appeal, are the
same arguments undergirding Wyckoff's claim that the verdict was against the
weight of the evidence, and because those arguments do not support the
contention that the verdict was unreasonably reached, we affirm the denial of

plaintiff's motion for a new trial.

IV.
46

Wyckoff raises several arguments concerning the specificity and timing of

Standard Fire's defense of fraud and false swearing. First, Wyckoff argues that,
pursuant to line 123 through line 128 of Michigan's standard fire policy,22 the
overvaluation issues pertaining to Wyckoff's claimed contents loss and camera
loss should never have been presented to the jury and should have been
resolved only by arbitration. Acknowledging that section 500.2832 requires
"the written demand of either" party in order that a disagreement as to amount
of loss be presented to arbitration, Wyckoff attempts to justify its failure to
make such a request on the ground that Standard Fire never alleged
overvaluation of assets as a basis for fraud until Wyckoff commenced the suit.
Essentially, Wyckoff argues that it could not request arbitration of an issue that
had not been put in dispute.

47

Assuming that the amount of loss was not in dispute until after Wyckoff filed
the suit, any confusion as to Standard Fire's position on this issue became clear
before the trial commenced when the parties agreed to the joint final pretrial
statement. In that statement, defendant asserted that Wyckoff's claim was
barred on the basis of fraud and false swearing relative to, inter alia, "the value
of personal property destroyed by the fire." Although this basis for fraud was
not among the affirmative defenses listed in Standard Fire's answer to plaintiff's
complaint, Standard Fire did assert the defense of fraud and false swearing with
regard to "the cause and origin of the fire, the financial condition of the plaintiff
and the proposed sale of a division of the said business." The latter two bases
of fraud were asserted in response to plaintiff's claim for loss of earnings in the
amount of $400,000, a claim plaintiff eventually dropped, and these bases place
in dispute the value of that claim.

48

Where Wyckoff knew that overvaluation was in dispute before the trial
commenced, we see no reason to allow Wyckoff to take its chances with the
jury and then raise the argument, apparently for the first time on appeal, that
had it known overvaluation was an issue it would have asked that the issue be
submitted to arbitration rather than to the jury. Issues not presented to the
district court but raised for the first time on appeal are not properly before the
court. Boone Coal & Timber Co. v. Polan, 787 F.2d 1056, 1064 (6th Cir.1986).
Furthermore, "[s]ince the appraisal process does not resolve any question of
liability of an insurer but merely resolves the amount of losses suffered by the
insured," American Auto. Ins. Co. v. Kevreson, 131 Mich.App. 759, 763, 347
N.W.2d 1 (1984), appraisal is not a condition precedent to asserting a liability

defense based on fraud and false swearing related to the claimed value of loss.
V.
49

Wyckoff also argues that once an insurance company denies a claim on certain
grounds, it is bound to those defenses and is estopped from raising defenses not
asserted in the denial letter. Therefore, according to Wyckoff, the trial court
erred by allowing Standard Fire to defend liability at trial on the basis of fraud
and false swearing regarding the value of losses claimed by Wyckoff, when the
fraud alleged in the denial letter asserted false swearing only with regard to the
origin of the fire. Wyckoff contends that although Standard Fire's answer to
plaintiff's complaint added the defenses of fraud and false swearing regarding
plaintiff's financial condition and the proposed sale of a division of the business
(Julie's Family Portraits), and although these pleadings were subsequently
supplemented by further assertions of fraud in the joint final pretrial statement
(business interruption loss, value of property destroyed, relationship with the
Bank), this manner of amending the proofs is improper and constitutes
reversible error under Michigan insurance law.

50

Wyckoff further contends that Standard Fire was allowed to present testimony
at trial to support the theory that items which had not actually been destroyed
by the fire were claimed on the proof of loss. The trial court committed error by
not excluding this evidence and then submitting the issue to the jury, according
to Wyckoff, as the assertion that undamaged items had been claimed does not
appear anywhere in the pleadings or pretrial statement, and thus violates the
notice requirements of Federal Rule of Civil Procedure 9(b) that "the
circumstances constituting fraud or mistake shall be stated with particularity."

51

The short answer to plaintiff's arguments is that issues not presented to the
district court but raised for the first time on appeal are not properly before this
court. Boone Coal, 787 F.2d at 1064. With one exception, which we shall
address in due course, plaintiff makes no claim and points to no portion of the
record indicating that these arguments were presented to the trial court.

52

However, even assuming the issue is properly before us, we reject plaintiff's
contention that allowing Standard Fire to amend its proofs was improper. It is
entirely appropriate to allow a party to amend its theories to conform to the
evidence, particularly where the evidence is under the control of another party.
See Michaels Bldg. Co. v. Ameritrust Co., N.A., 848 F.2d 674, 680 (6th
Cir.1988). Plaintiff correctly asserts that, ordinarily, a denial of liability on
specified grounds constitutes a waiver and estoppel of other defenses. Martinek
v. Firemen's Ins. Co., 247 Mich. 188, 191, 225 N.W. 527 (1929). However, "

[w]aiver and estoppel are founded upon [defendant's] knowledge of facts." Id.
Permission to add a new defense by amendment is within the discretion of the
trial court, Villamor v. Premier Ins. Co., 13 Mich.App. 30, 33, 163 N.W.2d 697
(1968), and where the denial letter alleged fraud with respect to the origin of
the fire and Standard Fire subsequently became aware of other instances of
fraud during discovery, we find no abuse of discretion in allowing Standard
Fire to plead additional grounds of fraud in its answer and in the final pretrial
order.
53

Rule 9(b) requires that the circumstances of fraud be pled with enough
particularity to put the party on notice as to the nature of the claim, Michaels
Bldg., 848 F.2d at 680, and Standard Fire sufficiently stated its claims in the
joint pretrial statement so as to meet that requirement. Even assuming the
allegation--that Wyckoff falsely claimed undamaged items--does not fall within
the ambit of defendant's claim that Wyckoff falsely stated "the value of
personal property destroyed by the fire," we find no abuse of discretion in
permitting the issue to be tried and submitted to the jury where plaintiff was not
taken by surprise or prejudiced by the failure to plead. See Mason v. Hunter,
534 F.2d 822, 825 (8th Cir.1976). Plaintiff was aware of the issue and
implicitly consented to its litigation by agreeing to the joint pretrial statement,
which listed "[t]he extent of loss suffered by the contents" among the issues of
fact to be litigated, and by failing to object to the jury instruction that the policy
is void if plaintiff "claimed [that] property was damaged or destroyed, when, in
fact, the property was not damaged or destroyed by the fire." Indeed, plaintiff
points to no portion of the record where it asserted at any time an objection to
the testimony concerning undamaged items.

54

The only portion of the testimony to which plaintiff objected (the only time that
it asserted the various pleading arguments that it now asserts) concerned the
introduction of testimony on Wyckoff's claim for loss of earnings due to
business interruption. Plaintiff argued that, although Wyckoff claimed an
undetermined loss for business interruption when filing its proof of loss, it
never placed a dollar amount on that loss until it filed suit against Standard
Fire. The basis of plaintiff's objection was that acts of fraud occurring after the
denial of a claim cannot be asserted as grounds for denying the claim.23 The
trial court overruled the objection on the basis that one cannot avoid a charge
of fraud by falsely claiming lost earnings and waiting until later to place a value
on that loss. We find nothing prejudicial to plaintiff in this ruling, and, insofar
as Wyckoff is correct that fraud committed subsequent to a claim's denial is not
a basis for defending liability on a claim, the jury was instructed in accordance
with this principle.24

VI.
55

Wyckoff contests the consent judgment that the Bank shall recover $560,000
plus post-judgment interest from Standard Fire in satisfaction of the Bank's
direct claims against Standard Fire. Plaintiff argues that Standard Fire should
have to pay the amount due and owing at the time of the fire, and that
Wyckoff's partial payment of the debt during the period between the fire and
the date when payment was finally made by Standard Fire to the Bank should
not affect the amount owed by Standard Fire. Wyckoff asserts that if Standard
Fire had not contested the claim and had paid the Bank immediately under the
policy, the $246,830.85 paid by Wyckoff to the Bank could have been used to
pay creditors. By allowing the insurer credit for payments made by Wyckoff,
the court, contends Wyckoff, is allowing Standard Fire to reap a windfall by
virtue of its delay in paying the claim. Wyckoff contends that it is not
attempting to assert its own rights under the policy, but is only attempting, as a
debtor-in-possession, to obtain for the Bank what should have been paid
initially by Standard Fire and to protect the rights of Wyckoff's unsecured
creditors.

56

Although defendant argues that Wyckoff lacks standing to appeal the terms of
the consent decree to which it is not a party, we choose nonetheless to address
the merits of the issue raised by plaintiff. In light of the fact that we find
plaintiff's claims without merit, our assumption in favor of standing for plaintiff
is without consequence and should not be construed as a decision on the merits
of the standing issue.

57

Wyckoff's argument rests upon the premise that the parties should be put in the
position they would have been had Standard Fire paid the Bank promptly after
the loss. It is true, as plaintiff argues, that Michigan courts have held that the
amount due from an insurer is fixed as of the date of the fire. In Root v.
Republic Insurance Co., 82 Mich.App. 446, 452, 266 N.W.2d 842 (1978), the
Michigan Court of Appeals ruled that a trial court correctly awarded damages
against an insurance company based upon the balance due on a land contract as
of the date of a fire, without crediting the insurer with subsequent payments
made on the land contract by the purchaser. In Root, a land contract vendor was
named under a Michigan standard mortgage clause. After a loss under the
policy, the insurance company paid the vendee instead of paying the named
vendor. The vendee then absconded, leaving a sizeable balance due on the
contract. The trial court awarded the vendor judgment against the insurance
company in the full amount due on the land contract as of the date of the fire.
The defendant argued "that the trial court erred in awarding damages to
plaintiffs based on the balance due on the land contract at the date of the fire

and not taking into account subsequent payments by [the vendee] on the land
contract." Root, 82 Mich.App. at 451-52, 266 N.W.2d 842.

58

The court rejected this argument, stating that:

59

Generally, the rights of the parties to a fire insurance policy are fixed as of the
date of the fire. Booker T Theater Co v. Great American Insurance Co, 369
Mich. 583; 120 NW2d 776 (1963), Sietsema v. Freemont [Fremont] Mutual
Insurance Co, 38 Mich App 582; 196 NW2d 841 (1972). Plaintiffs' possible
liability to [vendee] for excess payment under the land contract does not affect
defendant's liability to plaintiffs under the insurance contract.

60

Id. at 452, 266 N.W.2d 842 (emphasis added).

61

Unlike Root, however, we are presented here with a situation where the entity
seeking payment under the standard mortgage clause agrees with the insurer as
to the amount due to it under the policy. Also unlike Root, we face a situation
where the wrongdoer seeks to determine defendant's liability to the mortgagee
by asserting the mortgagee's potential liability to the wrongdoer for excess
payments made by the wrongdoer to the mortgagee. As the United States
Bankruptcy Court for the Eastern District of Michigan noted in In re Light, 23
B.R. 482 (Bankr.E.D.Mich.1982), allowing a wrongdoer's creditors to recover
under an insurance policy ultimately benefits the wrongdoer. In re Light held
that the debtor's intentional act in setting a fire constituted a complete bar to
recovery under an insurance policy by the bankruptcy trustee because the
trustee was not a co-insured but took his interest pursuant to the debtor's
interest. Here, the debtor's interest has been extinguished, the debtor having
been barred from recovery. Wyckoff, the debtor, should not be permitted to
benefit from its wrongful conduct either directly or indirectly.

62

Wyckoff's attempt to distinguish Light is unpersuasive. The policy in that case

was presumed void because of the insured's wrongful conduct. The mere fact
that the fraudulent conduct in Light was arson, as opposed to the fraud and
false swearing committed by Wyckoff in the present case, is irrelevant. The
Michigan courts do not distinguish between fraudulent conduct which causes
the loss and fraudulent submission of proofs after a loss has occurred. Both
types of fraud completely bar the wrongdoer's right to recover insurance
proceeds. Monaghan v. Agricultural Fire Ins. Co., 53 Mich. 238, 253-54, 18
N.W. 797 (1884).

63

Moreover, the standard mortgage clause contained in the insurance policy

issued to Wyckoff provided in pertinent part:

64
When
the Company shall pay the mortgagee any sum for loss under this policy, and
shall claim that, as to the mortgagor or owner, no liability therefor existed, the
Company shall, to the extent of such payment, be thereupon legally subrogated to all
of the rights of the mortgagee to whom such payment shall have been made, under
the mortgage debt. In lieu of taking such subrogation, the Company may, at its
option, pay to the mortgagee the whole principal due or to grow due on the
mortgage, with interest accrued and shall thereupon receive a full assignment and
transfer of the mortgage and of all such other securities....
65

In the present case, Standard Fire has denied that it owes any liability to the
mortgagor, Wyckoff. Accordingly, if Standard Fire is required to pay the entire
amount owing on the Wyckoff mortgages at the time of the fire, it would be
entitled to an assignment of these mortgages from the Bank. As an assignee,
Standard Fire would replace the Bank as a secured creditor of Wyckoff, and
any amount in excess of the true mortgage debt at the time of payment would
be recoverable by Standard Fire, not Wyckoff. Thus, whether Standard Fire
receives a credit for the amounts already paid by Wyckoff to reduce the
mortgage debt, or whether the difference between the existing debt and the
debt at the time of the fire is owed to Standard Fire, the result is the same.
Under either scenario, the excess amounts would not be available to Wyckoff or
its unsecured creditors.

66

In Root, the insurer did not raise any policy defenses and paid the mortgagor's
claim. Because the insurer had admitted liability, the Michigan Court of
Appeals ruled that the insurer was not entitled to exercise its subrogation or
assignment option and was, therefore, not entitled to a credit of the excess
payments made by the mortgagor. As the court stated in Root:

67

Finally, defendant argues that under the "mortgagee interests and obligations"
provision quoted above, it may require an assignment of the land contract on
which it has been ordered to pay the balance due. However, the provision relied
upon applies only if the insurer claims "no liability existed " as to the
mortgagor or owner. Here the insurer admitted liability and proceeded through
appraisal to fix the amount of liability. On the facts of this case, the insurer is
not entitled to subrogation or an assignment.

68

82 Mich.App. at 452, 266 N.W.2d 842.

69

In the present case, not only has Standard Fire denied it owed Wyckoff any

insurance proceeds, but also a jury has determined that Wyckoff is not entitled
to recover under the insurance policy because Wyckoff committed fraud. If
Wyckoff had not been found guilty of fraud, an argument could be made under
Root that Wyckoff is entitled to the difference between the current mortgage
debt and the debt outstanding when the loss occurred. Standard Fire, however,
owes no liability to Wyckoff in this case. Because Standard Fire has no liability
to Wyckoff, it would be entitled to take an assignment of the mortgages from
the Bank and would receive the benefit of payments made by Wyckoff since
the fire, which have reduced the mortgage debt.
VII.
70

Standard Fire argues that the trial court erroneously excluded Scott Riley's
testimony regarding locked doors within the Wyckoff buildings, thereby
prejudicing Standard Fire's ability to effectively present an arson defense.25 The
testimony at issue was stricken on the grounds that it conflicted with Standard
Fire's response to a request for admission and its answer to an interrogatory
concerning the kind of evidence it intended to use, and that it unfairly surprised
Wyckoff. Because we uphold the jury verdict in favor of Standard Fire on the
defense of fraud and false swearing, which serves as a complete defense under
section 500.2832, the arson defense is moot and we need not address this
evidentiary issue.

VIII.
71

In the insurance policy in effect at the time of the fire, the Bank is listed in the
policy's endorsement under a "Loss Payable Clause."26 In Van Buren v. St.
Joseph County Village Fire Insurance Co., 28 Mich. 398 (1874), the leading
case articulating the rights of a "loss payee," the Michigan Supreme Court held
that the rights of a mortgagee under a loss payee clause are derived through the
insured and "whatever will defeat [the insured's] right of recovery must of
necessity defeat any right of the mortgagee." Id. at 405. See also Gallant v.
Lake States Mut. Ins. Co., 142 Mich.App. 183, 187, 369 N.W.2d 205 (1985)
("Under an open loss clause, the policy is subject to any act or omission of the
insured which might void, terminate, or adversely affect coverage. If the policy
is not collectible by the insured ... the loss payee also cannot recover.")

72

In accordance with this authority, Standard Fire argued before the district court
that its defense of fraud and false swearing as to Wyckoff's claim, which was
established at the jury trial, also applies as to the Bank's claim qua loss payee.
The Bank, however, argued that, while it may be listed under a loss payable
clause, Standard Fire should be estopped from denying that the Bank's interests

are protected under a standard mortgage clause. A mortgagee under a standard

mortgage clause "is not subject to defenses available to the insurer against the
mortgagor," Cottrell v. Clark, 126 Mich.App. 276, 280, 337 N.W.2d 58 (1983),
and if protected by such a clause the Bank would be entitled to recover under
the policy in spite of the jury's finding that Wyckoff committed fraud and false
swearing. We adopt the holding of the district court that Standard Fire was
estopped from denying the Bank the protection of a standard mortgage clause.
73

The doctrine of equitable estoppel includes three elements and arises when (1) a
party, by acts, representations, admissions or silence, intentionally or
negligently induces another party to believe facts; (2) the other party justifiably
relies and acts on this belief; and (3) will be prejudiced if the first party is
permitted to deny the existence of the facts. Conel Dev., Inc. v. River Rouge
Sav. Bank, 84 Mich.App. 415, 422-23, 269 N.W.2d 621 (1978); Kole v.
Lampen, 191 Mich. 156, 157-58, 157 N.W. 392 (1916). Where an allegation of
estoppel raises factual questions on which reasonable minds might disagree, the
questions must be resolved at trial by the trier of fact. See Conel, 84 Mich.App.
at 423, 269 N.W.2d 621; Anderson v. Sanders, 14 Mich.App. 58, 61, 165
N.W.2d 290 (1968). However, where the facts are not in dispute or are beyond
dispute, the existence of estoppel is a question of law. Anderson, 14 Mich.App.
at 61, 165 N.W.2d 290. Thus, in determining the propriety of the district court's
grant of summary judgment, the test is whether the undisputed facts establish
the elements of estoppel.

74

The district court held that the Bank justifiably relied on the certificate of
insurance as indicating coverage under a standard mortgage clause. Standard
Fire does not contest the third element of estoppel but focuses its argument on
appeal on the first and second elements. Standard Fire argues that the generic
language in the certificate should indicate nothing as to the type of
endorsement covering the Bank's interest and that the Bank failed to present
evidence establishing reliance on the certificate. According to Standard Fire,
the Bank's evidence, at best, creates an issue of fact to be decided by a jury.

75

There are two responses to this argument. First, there is authority for the
proposition that the only reliance required in these cases is the insured's
reliance on the agent to prepare a policy in accordance with the information and
instructions furnished to the agent by the insured. Johnson v. American Fidelity
Fire Ins. Co., 351 Mich. 515, 522-23, 88 N.W.2d 913 (1958). It is undisputed
that Westwood was given or had access to the Frankenmuth policy naming the
Bank in a standard mortgage clause, that he was instructed to duplicate or
improve upon that policy, that he knew the Bank was a mortgagee, and that he
could have named the Bank in a standard mortgage clause with no additional

cost to Wyckoff. Pursuant to Johnson and the facts of this case, it is not
necessary that the Bank rely specifically on the certificate of insurance for
estoppel to be found as a matter of law.[W]here an insurance company has full
knowledge of the circumstances involved in the writing of a policy and fails to
make the recitals in that policy correspond with the facts, while receiving and
retaining the premiums, the insurer is estopped from offering his own incorrect
recital of the facts in order to defeat liability.
76

Johnson, 351 Mich. at 521, 88 N.W.2d 913 (citations omitted). See also North
American Fire Ins. Co. v. Throop, 22 Mich. 146, 158-59 (1871). If Wyckoff's
policy had been written according to the instructions given by Wyckoff to
Westwood, there would be no question pertaining to the Bank's protection
under a standard mortgage clause.27

77

Standard Fire correctly points out that, generally, the law in Michigan places a
duty upon an insured to read the policy and air any discrepancies in coverage
within a reasonable time after issuance of the policy. Parmet Homes, Inc. v.
Republic Ins. Co., 111 Mich.App. 140, 145, 314 N.W.2d 453 (1981); Industro
Motive Corp. v. Morris Agency, Inc., 76 Mich.App. 390, 396, 256 N.W.2d 607
(1977). However, this rule does not apply when a renewal policy is issued
without calling the insured's attention to a reduction in coverage, as the insurer
in those circumstances is bound by the greater coverage in the earlier policy. Id.
This renewal exception applies equally in those circumstances where the
insured changes insurers, seeking no more than to revive coverage identical to
its former insurance. Id. Cf. Western Casualty & Sur. Co. v. Sliter, 555 F.Supp.
369, 370 (E.D.Mich.1983). We find these principles of law applicable here.28

78

The second response to Standard Fire's argument is that, even assuming the
Bank must establish reliance upon the certificate itself, we find the elements of
estoppel satisfied. The certificate included the following language: "Certificate
Holder is indicated on the policy as mortgagee on building & contents."

79

Due to the ambiguity of the term "mortgagee" and the rules of construction for
insurance policies and certificates of insurance, the district court construed the
certificate as representing the Bank's interests to be protected by a standard
mortgage clause. We accept the district court's reasoning on this issue:

80

Many property insurance policies contain provisions that purport to protect

secured creditors' interests against loss, Couch, Sec. 42.682. "Such clauses have
been variously denominated as the 'mortgage clause,' the 'mortgagee clause,'
the 'standard clause,' the 'standard mortgage clause,' the 'standard mortgagee

clause,' the 'union clause,' the 'union mortgagee clause,' the 'loss-payable
clause,' and the 'ordinary' or 'open-mortgage clause.' " Id. Thus, secured
creditors listed under these various clauses could be described as "mortgagees,"
"standard mortgagees," "union mortgagees," "loss-payees," "ordinary
mortgagees," or "open-mortgagees." The bald reference in the certificate to
"mortgagee," therefore, does not meaningfully inform the Bank that its rights
are less than as a standard mortgagee. The term is decidedly ambiguous. Since
any doubts or ambiguity with respect to a certificate of insurance should be
construed most favorably to the insured, see Freeman v. Massachusetts Mut.
Life Ins. Co., 27 Mich.App. 572, 580 [183 N.W.2d 832] (1970), the Court finds
that the term "mortgagee" refers to a standard mortgage clause.
81

Wyckoff v. Standard Fire Ins. Co., No. 86-CV-10367-BC, slip op. at 7-8
(E.D.Mich. Nov. 10, 1988).

82

Contesting the district court's finding that the term "mortgagee" is ambiguous,
Standard Fire argues that the Bank should be held to the technical construction
of terms used in transactions within the Bank's field of expertise. See Boyd v.
General Motors Acceptance Corp., 162 Mich.App. 446, 456-57, 413 N.W.2d
683 (1987) (quoting Restatement (Second) of Contracts Sec. 202(3)(b))
("technical terms and words of art are given their technical meaning when used
in transaction within their technical field."). Standard Fire argues that the term
"mortgagee" does not identify either a standard mortgage endorsement or a loss
payable endorsement but merely describes the nature of the lender's interest in
the insured property, and the term should indicate nothing to a sophisticated
commercial lender as to the type of endorsement that covers its interest.

83

In addition to proffering a technical meaning that lends itself to ambiguity, the

meaning Standard Fire offers is contrary to its own use of "mortgagee" in the
policy issued to Wyckoff. Standard Fire lists both "loss payee" and
"mortgagee" as separate and distinct entities on page four, a policy change
endorsement; this conflicts with the assertion that the term "mortgagee" is
inclusive of lenders protected under either loss payable or standard mortgage
clauses. Further, in its standard mortgage provision, referred to as "the
Mortgage Clause" on page 12 of Wyckoff's 1982 policy, Standard Fire uses the
term "mortgagee" to describe the entity covered by that provision.

84

For estoppel to apply, the Bank also must have relied upon the representation in
the certificate, and Standard Fire argues that the Bank's evidence, that it
routinely monitored policies and certificates of insurance for the language
"mortgagee," does not demonstrate that the Bank relied upon the certificate as
indicating coverage under a standard mortgage clause. However, it is not

necessary that affirmative action be taken in reliance on the representations;

nonaction in reliance, resulting in injury, is sufficient. Hetchler v. American
Life Ins. Co., 266 Mich. 608, 614, 254 N.W. 221 (1934). "It is enough if the
party has been induced to refrain from using such means or taking such action
as lay in his power, by which he might have retrieved his position and saved
himself from loss." Id. Further, reliance need not be proved by direct evidence
but may be inferred from the circumstances. Hetchler, 266 Mich. at 614, 254
N.W. 221; see also United States v. United States Trust Co., 660 F.Supp. 1085,
1088 (D.Mass.1986) (fact inferred on the basis of undisputed routine business
practice).
85

Although the Bank failed to produce any witness to testify that on a certain date
and time he or she read the certificate and relied upon its representations, the
Bank produced evidence, not disputed by Standard Fire, that it followed a
routine procedure of monitoring policies, renewal notices, and certificates of
insurance for the language "mortgagee." If these documents failed to identify
the Bank as a mortgagee, Tobias, the Bank's loan officer, would be notified and
the mortgagor would be contacted and directed to bring his or her insurance
policy into compliance with the Bank's lending requirements, which include the
requirement that its interest be listed under a standard mortgage clause. The
district court could properly accept the uncontroverted evidence of the Bank's
routine practice as establishing reliance for purposes of ruling on the motion for
summary judgment.

86

For the foregoing reasons, the judgment of the district court is AFFIRMED.

87

GEORGE CLIFTON EDWARDS, Jr., Senior Circuit Judge, dissenting.

88

This case involves some questionable pleading tactics by the appellee, Standard
Fire Insurance Company, which at the very least cause me to wonder about the
propriety of their fraud defense. The majority seemingly endorses these tactics
which but for a final pre-trial statement run completely afoul of all the rules and
age-old policy restrictions concerning claims of fraud. F.R.Civ.P. 8(c), 9(c). In
addition, the last minute addition of the completely new claim of fraud in the
proofs of loss contravenes the rule limiting insurance companies to only those
defenses raised in the original denial of coverage. Martinek v. Firemen's Ins.
Co., 247 Mich. 188, 225 N.W. 527 (1929).

89

Yet, even more disconcerting is the court's determination, in the absence of any
contemporary ruling from the Supreme Court of Michigan, that a defense of
"attempted fraud" now permits an insurance company to deny coverage to their

paying customers. See, M.C.L. 500.2832 The statutorily designed standard fire
policy in Michigan, though, seems to void coverage only for acts amounting to
actual fraud. M.C.L. 500.2832; D.R.C.D.T., Inc. v. Integrity Ins. Co., 816 F.2d
273 (6th Cir.1987). Moreover, the provisions of insurance contracts are strictly
construed in Michigan to protect the interests of the insured, the policyholder,
and forfeiture clauses are disfavored. In re Certified Question, Ford Motor Co.
v. Lumbermens Mutual Cas. Co., 413 Mich. 22, 38, 319 N.W.2d 320 (1982);
Ford Motor Credit Co. v. Aetna Cas. & Sur. Co., 717 F.2d 959 (6th Cir.1983).
90

In light of these clearly expressed rules of Michigan insurance law, I must

respectfully dissent from the judgment of the court affirming the attempted
fraud defense. At the very least, there is sufficient confusion concerning the
elements of the defense to require certification of the question to the Michigan
Supreme Court.

Although the complaint originally named Aetna Casualty & Surety Company,
the actual insurer of the policy, as defendant, the parties have stipulated that for
purposes of this lawsuit Standard Fire and Aetna Casualty are the same entity

Ann Arbor Leasing, Inc., an entity that leased equipment to Wyckoff, had also
been permitted to intervene for the purpose of protecting its interest in any
insurance proceeds paid to Wyckoff. Judgment was entered denying any
recovery by Ann Arbor Leasing, and that judgment has not been appealed

A mortgagee can protect his interest in the mortgaged property either by

obtaining his own insurance or by seeking the inclusion of a clause in the
mortgagor's property insurance policy. These latter clauses, which for purposes
of simplicity will be generically referred to as "mortgagee clauses," do not
operate as an assignment of the insurance policy. Rather, they function as an
agreement between the insurer and the parties as to the method by which the
policy's proceeds are to be distributed in the event of a loss. 10A Couch
Cyclopedia of Insurance Law 2d Sec. 42:684 (Rev. ed.)
Mortgage clauses can be segregated into two principal categories. The first
group, known as "loss payable clauses," provide that the proceeds of the policy
shall be paid first to the mortgagee, to the extent of his interest. The second
group, often referred to as "standard mortgage clauses," are more specific in
that they also provide that the mortgagee shall be protected against loss due to
any act or neglect of the mortgagor. Id. at Sec. 42:682.

The letter set forth the reasons for denial as follows:

The fire was [procured] to be set by you or by persons in [privity] with you, and
or with your knowledge and permission, and therefore your claims under the
policy are barred

Your claims under the policy are barred, as a result of fraud and false swearing
and the misrepresentation and concealment of material facts relating to the
cause and [origin] of the fire

The insurance policy contained the standard policy language relevant to fraud
and false swearing that is provided by Michigan statute:
This entire policy shall be void if, whether before or after a loss, the insured has
willfully concealed or misrepresented any material fact or circumstance
concerning this insurance or the subject thereof, or the interest of the insured
therein, or in case of any fraud or false swearing by the insured relating thereto.
Mich.Comp.Laws Ann. Sec. 500.2832.

At the close of defendant's proofs, plaintiff moved for directed verdict on the
fraud and false swearing claim, alleging insufficiency of the evidence. The
district court denied the motion

The Bank also asserted before the district court, and reasserts here, other
theories upon which a grant of summary judgment could be based, including
that it is entitled to reformation of the policy and that a loss payee is not barred
from recovery due to the fraud of another. The district court declined to address
the reformation argument. It did, however, address the Bank's theory that rights
under a loss payable clause cannot be defeated by fraud and false swearing that
occurs after the loss due to the fact that the rights of parties to a fire insurance
policy are fixed as of the time of the fire. The district court ultimately rejected
this theory. We need not review this portion of the decision or address the
reformation theory because we affirm the summary judgment on the basis that
Standard Fire was estopped from denying that the Bank's interests are protected
under a standard mortgage clause

Similarly, a trial court may grant a directed verdict only if it concludes, after
viewing all the evidence in the light most favorable to the nonmoving party,
that "all reasonable men would agree that there has been an essential failure of
proof." Rhea v. Massey-Ferguson, Inc., 767 F.2d 266, 269 (6th Cir.1985)
(quoting Snider v. Bob Thibodeau Ford, Inc., 42 Mich.App. 708, 712, 202
N.W.2d 727 (1972))

Defendant does not dispute plaintiff's assertion that there was no reliance, but
merely argues that reliance is not an essential element of its affirmative

defense. If defendant's factual allegations included reliance, and if that fact was
in dispute, then, in addition to determining whether sufficient evidence of
reliance required submission of the issue to the jury, we would also be faced
with the question whether the district judge's jury instructions misled the jury
by not including reliance as an element necessary for establishing fraud. A
judgment can be reversed if the instructions, viewed as a whole, were
confusing, misleading, and prejudicial. Beard v. Norwegian Caribbean Lines,
900 F.2d 71, 72-73 (6th Cir.1990); see also Camden Fire Ins. Co. v. Kaminski,
352 Mich. 507, 90 N.W.2d 685 (1958) (if substantial error exists in instructions
and party is thereby prejudiced, the appellate court must grant a new trial).
Because defendant does not allege reliance, and because the substance of the
court's charge to the jury in a diversity action is controlled by state law,
D.R.C.D.T., Inc. v. Integrity Ins. Co., 816 F.2d 273, 278 (6th Cir.1987), the
inquiry we conduct here in order to determine whether defendant has failed on
an essential element of proof--whether Michigan law requires reliance in order
to establish fraud and false swearing--is necessarily the same inquiry for
determining whether the jury instructions were erroneous and prejudicial. Thus,
we will not consider separately the propriety of the district court's jury
instructions
10

We also deny plaintiff's request that we certify for resolution to the Michigan
Supreme Court the question whether reliance is an element of the section
500.2832 defense of false swearing. Certification to the state court rests within
the sound discretion of the federal court, Lehman Bros. v. Schein, 416 U.S.
386, 391, 94 S.Ct. 1741, 1744, 40 L.Ed.2d 215 (1974), and is unnecessary
where we find, as we do here, controlling Michigan law on the issue sought to
be certified

11

Monaghan dealt with the following policy provision:

[A]ny neglect to comply with these provisions, or any misrepresentation or
concealment or fraud or false swearing in any statement or affidavit in relation
to loss or damage, shall forfeit all claim upon the company, by virtue of this
policy, and shall be a full bar to all remedies upon the same[.]
Monaghan, 53 Mich. at 254, 18 N.W. 797. Although the Monaghan decision
was later limited by Morgan v. Cincinnati Ins. Co., 411 Mich. 267, 276, 307
N.W.2d 53, 411 Mich. 267 (1981), the issue in Morgan involved the question
whether section 500.2832 created a joint obligation of suretyship such that the
fraud of one insured could bar recovery by another insured who is innocent of
fraud. Morgan has no application to the case at bar and did not overrule
Monaghan's holding that, where a policy provision bars recovery in the event of
false swearing, an insured who attempts a fraud is barred from recovery.

12

Bernadich quoted the general rule for actionable fraud, which contained the
elements of reliance and injury:
The general rule is that to constitute actionable fraud it must appear: (1) That
defendant made a material representation; (2) that it was false; (3) that when he
made it he knew that it was false, or made it recklessly, without any knowledge
of its truth and as a positive assertion; (4) that he made it with the intention that
it should be acted upon by plaintiff; (5) that plaintiff acted in reliance upon it;
and (6) that he thereby suffered injury. Each of these facts must be proved with
a reasonable degree of certainty, and all of them must be found to exist; the
absence of any one of them is fatal to a recovery.
Bernadich, 287 Mich. at 143, 283 N.W. 5 (quoting Candler v. Heigho, 208
Mich. 115, 121, 175 N.W. 141 (1919)). Although it is undisputed that there
must be reliance upon a representation to make the misrepresentation
actionable, Hi-Way Motor Co. v. International Harvester Co., 398 Mich. 330,
247 N.W.2d 813 (1976), this does not automatically mean that reliance is
required where fraud is alleged as an affirmative defense to a breach of contract
claim, and the contract provides, as it does here, that it is void in the event of
false swearing related to the subject of the contract.

13

Rayis cites West v. Farm Bureau Mutual Insurance Co., 63 Mich.App. 279,
282, 234 N.W.2d 485 (1975), rev'd, 402 Mich. 67, 259 N.W.2d 556 (1977),
which characterized the elements of fraud required to void a policy under
section 500.2832 in the same manner as did the district court in the case at bar.
Rayis, 80 Mich.App. at 393, 264 N.W.2d 5. Upon appeal of West, the
Michigan Supreme Court was presented with the question whether the
insurance company must show that it relied on the alleged misrepresentation or
was damaged by it. The court declined to consider that question, disposing of
the appeal on other grounds. West, 402 Mich. 67, 70 n. 7, 259 N.W.2d 556
(1977)

14

The distinction is, at best, implied, as Bernadich only involved false statements
made by an insured after a third party made a claim on the insured's automobile
insurance policy. The fraudulent procurement of insurance was not an issue.
However, in affirming the denial of a motion notwithstanding the verdict, the
Bernadich court merely sustained the jury's finding that the defendant had not
"attempted to perpetrate a fraud," and the court did not apply the evidence to
the various elements of fraud. Bernadich, 287 Mich. at 143, 283 N.W. 5
(emphasis added). The decision could be read as considering reliance and
prejudice as factors independent of the defense of fraud, perhaps as an
alternative basis for the holding, for affirmance was on the ground "that
defendant was not guilty of any fraud in making the various statements to the

insurance company, and that no damage or prejudice to the company resulted

therefrom." Id. at 142, 146, 283 N.W. 5 (emphasis added)
Whether this is an appropriate reading is difficult to ascertain as the insurance
company in that case denied liability on the basis that the insured failed to
cooperate in securing evidence and on the basis of false reports. The court's
analysis appears to have merged the two defenses when discussing them, and
although subsequent to Bernadich Michigan courts have required a showing of
reliance and prejudice when voiding a policy for non-cooperation, see Allen v.
Cheatum, 351 Mich. 585, 595, 88 N.W.2d 306 (1958), no similar conclusion
obtains when viewing decisions that address fraud. Although a panel of the
Michigan Court of Appeals cited Bernadich for the proposition that a fire
insurance policy may not be voided due to misrepresentations or false
statements where the insurer was not prejudiced, Gibson v. Group Ins. Co., 142
Mich.App. 271, 276, 369 N.W.2d 484 (1985), the central issue in Gibson was
not fraud but whether the plaintiff substantially performed his contractual
obligation to cooperate with the investigation by failing to submit to
examination. Id.
15

See Tiefenthal v. Citizens' Mut. Fire Ins. Co., 53 Mich. 306, 309-10, 19 N.W. 9
(1884); Campbell v. Great Lakes Ins. Co., 228 Mich. 636, 640, 200 N.W. 457
(1924). In addition, without specifically addressing reliance, federal decisions
applying Michigan law have approved charges to the jury that do not contain
the element of reliance. Kelly's Auto Parts, 809 F.2d at 1255-56; Westchester
Fire Ins. Co. v. Hanley, 284 F.2d 409, 414-15 (6th Cir.1960), cert. denied, 365
U.S. 869, 81 S.Ct. 903, 5 L.Ed.2d 860 (1961)

16

Our decision should not be construed as holding that reliance would never be
required before an insurance contract can be repudiated pursuant to a forfeiture
provision similar to the one presented in section 500.2832. For example, "
[w]here, disregarding the proof of loss, the insurer makes an adjustment with
the insured, in which the proof of loss is not a factor, no reasonable
construction of the contract, or view of its purpose, could permit the insurer to
repudiate its agreed adjustment and hark back to the proof of loss." Alma State
Savings Bank v. Springfield Fire & Marine Ins. Co., 268 Mich. 631, 635, 256
N.W. 573 (1934). In Alma State, the proof of loss was not filed before the
adjustment was made and, thus, was never examined until after the insurer
agreed to the amount of loss
Such is not the case here, where Standard Fire commenced an investigation of
Wyckoff's claim based upon his proof of loss and denied the claim when it
believed the claim to be contrary to the facts. Put another way, insofar as Alma
State requires the insurer to be misled by a proof of loss, when Wyckoff

submitted his proof of loss and Standard Fire proceeded to process and
investigate his claim according to the information provided in the proof of loss,
Standard Fire thereby "relied upon" Wyckoff's statements even though it
subsequently denied his claim. We see no reason why Standard Fire must incur
the "injury" of paying what it believes to be a fraudulent claim before it can
properly claim fraud. Such a result would deny the forfeiture provision of
section 500.2832 any reasonable force and effect.
17

Plaintiff also argues, in the context of its argument appealing the denial of its
motion for a new trial, that the subsequent verdict was against the great weight
of the evidence. Because we review this argument according to a different
standard of review, we will address it separately, infra, from the appeal of the
court's order denying a judgment notwithstanding a verdict

18

The court instructed the jury that the defendant has the burden of proving that
the "false representation was made with the intention of deceiving the
defendant," and that "a false claim regarding a small portion of the loss may not
result in a forfeiture of the coverage unless the insured is shown to be clearly
culpable."

19

When determining whether the evidence is sufficient, the trial court should not
weigh the evidence, evaluate the credibility of witnesses, or substitute its
judgment for that of the jury. Rather, the evidence must be viewed in the light
most favorable to the party against whom the motion is made. Morelock v.
NCR Corp., 586 F.2d 1096, 1104-05 (6th Cir.1978), cert. denied, 441 U.S. 906,
99 S.Ct. 1995, 60 L.Ed.2d 375 (1979)

20

Although, "[i]n a diversity case, the question of whether a new trial is to be

granted is a federal procedural question and is to be decided by reference to
federal law," Toth v. Yoder Co., 749 F.2d 1190, 1197 (6th Cir.1984), we note
that the federal law we reference here is the same as the test used by Michigan
courts, which review the issue "on the basis of whether or not the trial court has
abused its discretion." Andrews v. Insurance Co. of North Am., 394 Mich. 464,
465, 231 N.W.2d 645 (1975)

21

Concerning the alleged insufficiency of the evidence, the district court's

memorandum opinion references the reasons stated on the record at trial in
ruling on the motion for a directed verdict

22

The relevant portion of the policy reads:

In case the insured and this Company shall fail to agree as to the actual cash
value or the amount of loss, then, on the written demand of either, each shall
select a competent and disinterested appraiser and notify the other of the

appraiser selected within twenty days of such demand.

Mich.Comp.Laws Ann. Sec. 500.2832.
23

24

Plaintiff's assertion here, that events occurring subsequent to the denial of a

claim cannot form the basis of a defense to liability, is distinct from the
assertion already addressed, that events occurring prior to denial, but discovered
after the claim is denied, cannot be used to defend liability
After charging the jury on the elements of fraud, the court instructed the jury
that "[t]he [false] statement may have involved the business interruption claim,
but a false statement, if any, made after the claim was denied and after a lawsuit
was commenced, may not be used as a basis for denial of liability for a loss."

25

During the course of the trial, Scott Riley, office manager at Wyckoff, testified
that it was necessary to unlock two interior doors in order to give the firemen
access to the second fire which had been started in the north building

26

Although the insurance policy in effect at the time of the fire was a renewal
policy effective July 1, 1983, that policy did not differ from the 1982 policy on
matters relating to the protection of secured parties. Although the renewal of an
insurance policy constitutes a separate contract, if an agreement to renew is
made and there is no departure from the terms of the original contract, or the
policy is issued without calling to the insured's attention a reduction in
coverage, the parties are still bound by the provisions of the policy as originally
issued. Industro Motive Corp. v. Morris Agency, Inc., 76 Mich.App. 390, 396,
256 N.W.2d 607 (1977); Aurora Fire & Marine Ins. Co. v. Kranich, 36 Mich.
289, 294-95 (1877). Consequently, while our discussion focuses on whether
Standard Fire is estopped from relying on the loss payee clause in the 1982
policy that expired on June 30, 1983, this discussion applies equally to the
renewal policy

27

Standard Fire argues that it and Westwood had no duty to advise Wyckoff
regarding the availability of a standard mortgage clause or the adequacy of a
loss payable clause. Standard Fire cites Bruner v. League General Insurance
Co., 164 Mich.App. 28, 31, 416 N.W.2d 318 (1987), which held that, absent a
special relationship, an insurance agent does not have an affirmative duty to
advise a client regarding the adequacy of a policy's coverage. Standard Fire's
reliance on Bruner and the cases cited therein is misplaced, for in Bruner,
unlike Johnson and the case at bar, there was no uncontroverted allegation that
the plaintiff requested the defendant to provide the protection that was being
denied post-claim. Id. at 34, 416 N.W.2d 318

28

The Michigan appeals court decisions cited herein draw their authority from an

early Michigan Supreme Court decision that speaks directly to the

circumstances presented here. Westwood did not use a written application, but
simply relied on approximately 70 pages of handwritten notes and the oral
instructions of Wyckoff, including the instruction to duplicate and improve
upon the Frankenmuth policy that protected the Bank's interests with a standard
mortgage clause. In Gristock v. Royal Insurance Co., 87 Mich. 428, 430, 49
N.W. 634 (1891), the Michigan Supreme Court observed:
Plaintiff had a right to rely upon the assumption that his policy would be in
accordance with the terms of his oral application. If the defendant [insured]
desired to make it anything different, it should, in order to make it binding upon
plaintiff, under the authorities in this State, have called his attention to those
clauses which differed from the oral application....